Introduction
New build properties are there for those who want to take advantage of the help to buy scheme. When buying a new build home, there are a few things you should look out for as the process can get quite overwhelming for someone who has never purchased a home.
Read on for all the topics about buying a new build to be discussed. Including why you should buy a new build property, what the pros and cons of buying a new build are as well as more complex legal issues like warranties involved with the property you have bought.
What is the point in buying a new build home?
New builds are great ways for first time buyers to get on the housing ladder. They have become popular in recent times in the UK because of the lack of housing, especially in the capital of London where property prices have grown by five times in a 20-year period starting from 2000.
This drastic increase in the price of properties puts the demand for housing into perspective. The government has actively invested funding in allowing brownfield land owned by local authorities to be sold to housing companies in order to provide new housing.
to match this demand, the help to buy scheme which allows first time buyers to buy a house with just a 5% deposit was introduced to give buyers more leverage in the market so homes aren’t all bought by landlords with more equity available for a buy to let mortgage that typically requires a larger 15% – 40% deposit.
Are new build prices negotiable?
Unlike other houses that have been previously owned, new build homes are generally negotiable because they are usually marketed for a lot more than they’re worth.
Unlike homes that have been previously owned, there is no house that is a fair comparison in the area in order to price a property. While the final price of a property is decided by what a buyer is willing to pay, the amount new build homes sell for fluctuates quite a lot because of a lack of direct comparison.
For example, new build homes tend to come with a premium as homeowners are buying the new feel of the property, modern insulation that is often given a higher EPC rating and a modern living space often with shared areas appealing to the more modern homeowner.
Opposed to this is the second-hand home which may already have a few previous owners or the property and more homes that are direct comparisons to the property for sale so they can price the property better and the price is less negotiable.
Also, when it comes to buying a new build, reasons for offering a lower value for the home in order to negotiate a better price include pointing out that there are restrictive covenants regarding the property that you are looking to buy.
In addition, comparing house price sales of houses that are similar in the development, pointing out that a property is one of the last houses that has to be sold in the whole development – identifying a more desperate seller could work to offer a lower offer.
Finally, pointing out that the inconvenience of snagging and repairing general repairs because of the home being new could be a reason to offer a lower price.
Tips when buying a new build
When you are making such a big decision like the purchase of a home it may be worth trying to gain as many tips as you can before you go ahead and make the big decision. It is up to the buyer to find as many tips as they can to make the best purchase for their budgets and for the area they are looking at.
Talk to the developers
When looking for a new-build property, making sure you understand the developers and what their intentions are with the development can be invaluable. You may be able to notice that a developer is just there for a quick sale and doesn’t really care about the quality of the product they are selling.
You want to shop around until you find someone that cares about the longevity of the property in terms of its structure and making sure the properties they are selling are able to go up in value over time because of the area they are built on and the quality of the development as a whole.
Developers who appeal to the buyers buying new builds are the ones who show that a buyer can make their money back over time by investing in an area that will be a thriving area of properties and perhaps a safe area with favourable amenities such as outdoor space, new roads and local commercial areas.
Talk to neighbours
Who better to talk about buying a new build home than those who have already bought a new build? Feel free to reach out to someone who has bought online, knock on doors and potentially look for anyone who is walking in the general area.
Ask them if they feel the area is safe if their property has had any issues since they bought it and whether they negotiated their price. This can be a great way to determine what the process would look like for yourself by learning from the mistakes or successes of others.
Explore the local area
Because you won’t be able to produce any income from a property that you buy, you will have to rely on the property appreciation over time if you are to make any money on the purchase of a new building.
This means you have to be certain the property demand will go up and new people will be coming into the area. This is where you have to do due diligence and look for indications that this will happen in the near future.
For example, look for the crime rate in the area and if there is any funding in place to reduce it. Find out if there are any good schools in the area and if these schools are likely to grow in popularity as the population of where you are buying grows. Even if you don’t have kids, this can be great for a buyer because it will attract families to an area who tend to stay in an area for a longer period of time.
Finally, looking at the amount of green space in the areas, the whereabouts of people and what they like to do during the day are all ways you can predict what kind of industry and commercial building will be developed in the bulldog over time.
If you really want to go in-depth with the research on the demographics of the area, you can also look at the social grade score of where you will be buying a new building.
If there are a lot of people in categories A and B, this is a good indication there are higher-skilled workers in the region which is an indication people in this area earn more money and are more affluent.
For more on how this category system works click here. The higher the social class, the better the crime rate tends to be alongside the quality of public amenities such as leisure centres, parks and public transport.
Be sceptical around the developer
Unfortunately, developers are often under a lot of pressure to sell homes and have targets that are sometimes unrealistic. As a result, they resort to bending the truth to show only the good sides of buying a new build home.
If there are no drawbacks shown in the viewing of a property, this may be a bad sign for those who tend to have a more realistic view of buying the house.
In particular, promotional material which is given to you by the developer is often very unrealistic. Also, using the legal services of a developer such as their own solicitor isn’t a good idea either. You want to check everything with someone who is not incentivized to sell the property such as a private solicitor, mortgage advisor or surveyor you are paying yourself.
This takes the pressure away from you in order to finalise buying a new build, allowing you to check out everything you need to until you are comfortable making a decision. Limited time deals, compelling deposits to lock you into a deal and artificial show homes are all common tricks that coerce a buyer into making a premature purchase of a new build.
What are the pros and cons of buying a new build?
Of course, before you decide on a house purchase that is likely hundreds of thousands of pounds, looking at a full list of pros and cons would be a good idea. The below heading allows you to weigh everything in a table that allows you to directly compare the benefits and downfalls of buying a new build home.
| Pros of buying a new-build | Cons of buying a new-build |
|---|---|
| Guarantees: most new-build houses already have a 10-year NHBC warranty covering and structural complications. Most developers also provide some kind of warranty usually lasting for two years. | Delays: There can be delays in the completion of a property. Mortgage offers may expire during construction delays. |
| High spec: It is rare to find major repairs in a new build home because of how high spec new build homes are. Energy efficiency and therefore low utility bills for buyers are made a priority | Defects: Defects are surprisingly common in a new build. They aren’t usually major repairs, you just need to report them to the developer. However, there is no guarantee developers will fix these issues quickly. |
| Personalisation: Buying off plan is a great way to choose customizable fixtures. This allows homeowners to truly start from scratch in a new property. | Deceptive marketing: Plans, show homes and brochures can show a far-fetched, unrealistic view of a property |
| No buyer chain: Whenever someone buys a house that has been owned by someone before, they may have to wait for someone to move out of the property or buy a home themself before they can move in. With new builds this isn’t an issue. | Size: While there are certainly exceptions to the rules, the room sizes in new build properties are often smaller due to developers wanting to fit in as many properties on an area of land as possible. |
| Incentives: Developers are more open to negotiation from buyers. Developers paying for legal fees or compromising on the price of a property happens commonly in new builds | Teething issues: Because of how new the home is, issues related to the internet, TV, heating and plumbing may all happen. Also, because of new builds having to form a new address. Deliveries may be problematic until the development is finished. |
| Schemes: The most common reason for a buyer buying a new build is they get to take advantage of help to buy laons. This is exclusive to new builds only | Disruption: Get familiar with dust, noise and chaos, if you are one of the first to move in to a property you will be living on a building site until other homes are finished |
How to get a mortgage on a new build home
To get a mortgage to buy a new build, you will have to first decide on the value of a home that you can reasonably afford. Using a mortgage calculator or getting a quick mortgage in principle from a lender could be a good place to start.
With your mortgage in principle, you will be able to convincingly make offers on a new build home and developers will also take you seriously. Some developers will even allow you to put down a deposit based on this agreement in the Principle document (AiP).
Once the deal on the new build goes through, you will be able to apply for the government’s help to buy an equity loan, use the equity loan (20% of the value of a home) to put a downpayment on the property you want to buy and then take out the remaining part of of the mortgage given the hard credit comes back positive and the lender offers you a mortgage similar to you AiP.
After this, the property will be purchased and it is a case of the person buying a new build paying off the government equity loan first and then the mortgage in order to eventually own a home outright.
Is it hard to get a new build mortgage?
It is difficult to say whether new builds are difficult or hard to get a mortgage for. On the one hand, a new build property is extremely energy efficient which means it is less expensive to run making the property a safer investment. However, there are also risks associated with new builds like if the property loses value over time.
If a homebuyer ever defaults on the mortgage of a property and falls into debt, the lender who loaned the mortgage may need to take possession of the home back. If the home has gone down in value, then it may not be possible for the lender to get the money back they put into a mortgage. As a result, it may be considered harder to gain a new build homeowner mortgage.
Furthermore, buying a new home will cost more than buying a second home if you compare the same room sizes and sizes of the property and take into consideration location. This means there is a premium on the price of a new build property. This results in some people not being able to afford the mortgage for the house. But the help to buy scheme for new builds makes this a bit easier.
How does warranty work with new builds?
Under rules laid out by the National House Building Council, new build properties have to have a 10-year warranty period. Throughout this time, builders have to come into a new build property to fix any repairs. This is because, in the construction of new homes, construction, electrical and plumbing defects are all extremely common.
As well as this organisation, there is also the Local Authority Building Control Warranty and Premier Guarantee that offer different warranties with different terms. You can check out Premier Guarantee for yourself here.
Warranty insurance
New build properties usually come with a warranty of one year anyway but you can take on additional warranty insurance in order to make sure anything that isn’t covered under the warranty of the building is still able to take place
Snagging period
A snagging period is usually written in the agreement of a new build by a developer. This is usually a two-year initial period where minor repairs are able to be worked on as they are discovered by the new buyer of the property.
Warranties on white goods
Some new build properties also offer warranties for white goods. This is because white goods such as dishwashers, tumble dryers and washing machines should be brand new and their fitting inside the property should be new too.
Are new builds freehold or leasehold?
As of June 2019, all homes bought as new builds will be sold as freehold homes. This is perfect for new build buyers as they will not have to pay any more ground rent.p having said this, service charges will still apply to some new builds. Especially flats that have shared areas.
This means a buyer is able to buy a house and own it outright without the developer still owning the land where the property is built. In a leasehold agreement, the homeowner would own the home but not the land it was built on.
This resulted in a lot of freeholders (who own the land), charging the leaseholder ground rent which are additional fees to maintain the grounds of the property.
In this change in legislation, freeholders were also given a maximum of fifteen working days to provide leaseholders with the necessary information they need to sell a home. As well as this, a fine of £200 is given to freeholders who want to make the home buying process longer than these 25 days. This rule was put in place to allow more rights to leaseholders who want to sell their homes.
Prior to these changes in June 2019, 99% of new build properties were sold as leasehold agreements. This new rule ensures that first-time buyers aren’t exploited by extortionate fees which freeholders charge in order to make additional money on the land that they own.
In conclusion
To wrap things up, when buying a new build, it is vital you consider whether the point in buying one is the right reason for your needs as well as what the pros and cons are of buying a new build property in this way.
Finally, there are a few technicalities that are also important like understanding the snagging periods involved with the property and what warranty you are eligible for when buying a new build too.
Overall, the process of buying a new build has to be considered based on what the homebuyer actually wants in their property first and then they can go about finding the right location and applying for the right mortgage too.
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